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Keep in mind that money is a very personal matter. What works for one person might not be the greatest option for you. To get the most out of your tax-saving investments, they must fit into your financial picture and contribute to your financial objectives. So, if you’re unsure whether a tax-saving investment is ideal for you, don’t be concerned.

In this article, we’ll go over a 5-point checklist. This checklist will assist you in sorting through the various tax-saving investing options available and selecting the best fit for your financial goals.

Check Old Vs New Tax Regime

The Finance Minister made a substantial shift in Budget 2020 by adopting a new tax framework. Lower tax rates and fewer exemptions are part of the new tax regime. You must choose which regime you wish to be protected under as a young investor.

Assume you opt to be covered under the old tax system. To get the full tax benefit, you’ll need to invest enough in the above tax-saving options to cover the entire limit (for example, INR 1.5 lacs for 80C and so on). If you opt to be subject to the new tax regime, you are not limited to traditional tax-saving investments such as PPF, ELSS, and NPS.

So, before you go any further, make an informed decision about which tax regime you wish to be covered under. This will assist you in better understanding the universe of financial products available to you, allowing you to make a more informed decision.

Tips to Identify the Right Tax-Saving Investments

1. Your Financial Goals

You are constantly bombarded with commercials and sales pitches that sell you on either a return or a tax benefit. No one ever talks about the most crucial aspect of your life: your financial objectives.

Remember, there is no such thing as a good or terrible investment. It’s only good or terrible if it helps you achieve your financial goal.

So, first and foremost, make a list of your financial objectives. This will include information such as how much money you want and when you want it. Once you understand this, you can make an informed decision about where to invest.

2. Your Risk Tolerance & Asset Allocation

Your risk tolerance should be aligned with a suitable tax-saving investment. Simply expressed, risk tolerance is the amount of total wealth that can be invested in equities markets while still sleeping soundly at night.

So, first and foremost, you should assess your risk tolerance and select an investment mix. Asset allocation is another term for this. Assume your risk tolerance is 60:40 in terms of equity and debt. At any given time, you should have 60% invested in equities items.

Check your existing asset allocation before making a new tax-saving investment and ITR filing in India. This will assist you in selecting an investment that aligns with your optimal asset allocation.

3. Evaluate the tax impact across the investment’s life cycle

People make the mistake of focusing solely on the tax savings at the time of investing when choosing a tax-saving investment product. However, as a wise investor, you should consider the tax implications of the product throughout its life cycle, which includes the following:

Don’t make the mistake of investing in a tax-saving investment without thinking about the lock-in period. Locking your money away for the sake of small tax savings is a bad idea. Taking out a costly personal loan when money is needed.

As a result, it’s critical that you know exactly why you’re investing this money before you do so. Then check when the money is due and make sure the suggested investment’s lock-in period is shorter than the time to target.

For example, if you want to invest in your child’s school in 8 years, PPF isn’t the best option because it has a 15-year lock-in period. Instead, think about ELSS mutual funds.

Final Words

Saving money on taxes isn’t a goal in and of itself. It’s only a small part of the overall financial picture. You avoid costly investment blunders when you choose tax-saving assets that correspond with your financial goals and risk tolerance. You also improve your chances of meeting your financial objectives without difficulty.

If you’re looking for much more intel in the Income Tax world and tax consultancy along with services like ITR filing in India and many more, the Tax Help desk is the place for you. Get hassle-free tax-related services with the best online tax filing services in India.

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